Behind the glitz of East Hampton - a town in debt

East Hampton is known worldwide for pristine beaches, breathtaking ocean vistas and rich-and-famous residents who pay premium prices for multimillion-dollar homes.

But beneath the swanky image, East Hampton is a small Long Island town of 20,000 year-round residents that has a big-time problem: a "complete collapse of fiscal management" by town officials that ballooned the town's debt to $30 million to $40 million, out of an annual $70-million budget, according to a special grand jury report.

Saying that town officials chose political expedience over financial responsibility, the grand jury revealed falsified accounts of the town's fiscal condition, misappropriation of funds and other improprieties over a six-year period.

"The Town of East Hampton's financial condition was propelled into a state of crisis between 2003 and 2009 by town employees who destroyed the financial health of the town," the grand jury concluded in its 26-page report released Tuesday. "Failure to tax and spend responsibly was motivated by concerns about political survival."

Former budget official charged

An investigation by the Suffolk County district attorney's office led to criminal charges against former town budget official Ted Hults, who pleaded guilty Monday to official misconduct and securities fraud, and the resignation last year of Supervisor William McGintee.

East Hampton's debt has ballooned to an estimated $30 million to $40 million. The town sought approval from Albany to borrow $30 million to cover its debts - a move that potentially could lead to a state takeover of East Hampton's finances, said Christopher McPartland, chief of the Suffolk district attorney's government corruption bureau.

If the debt burden were shifted to property owners, the owner of a home valued at $1 million would have to pay an additional $160 a year for the next 10 years, town officials said.

According to the report, McGintee and the town board kept the tax rate artificially low, ignoring the advice of auditors who recommended double-digit tax hikes to pay the rising costs of employee salaries, pensions and benefits.

District Attorney Thomas Spota said the grand jury's findings are a "cautionary tale" for elected officials faced with difficult decisions on taxes. Of East Hampton officials, Spota said: "Short and sweet, they wanted to get re-elected."

'They wanted to get re-elected'

"This is a somewhat extreme case of fiscal mismanagement," said Nicole Hanks, a spokeswoman for the state comptroller's office. A representative of the office testified before the grand jury.

McGintee, 58, of Springs, and Hults, 53, of Sag Harbor, both resigned last year. McPartland said Monday that McGintee resigned in October as part of an agreement with the district attorney's office, which agreed not to press charges against him.

McGintee could not be reached for comment Tuesday. Hults declined to speak to reporters Monday.

Hults, after his guilty plea following an indictment stemming from the grand jury investigation, was given a conditional discharge and will not serve jail or prison time.

Spota said McGintee was not charged because "there was simply insufficient evidence before the grand jury that he knew of Mr. Hults' illegal acts." He said McGintee cooperated with the investigation, but refused to say whether McGintee testified to the grand jury.

On Monday, Hults admitted he illegally looted the town's Community Preservation Fund of $8 million to pay for other town services. Hults also admitted misrepresenting the town's fiscal condition to Wall Street investors.

With Will Van Sant

and Mitchell Freedman